Thursday, August 10, 2006

Judge Turns Away QSDI Takeover Try

By Harry Saltzgaver,
Executive Editor

An attempt to foreclose on the lease for 55 acres around the Queen Mary was turned back Tuesday in U.S. Bankruptcy Court, allowing a bankruptcy asset sale to move forward.

Bar-K, owned by northern California financier Barney Ng, has lent Queen’s Seaport Development Inc. $24 million to maintain operation of the Queen Mary and development of the surrounding 55 acres. QSDI is a for-profit corporation that holds a 66-year lease from the city for the Queen Mary and the surrounding property. The ship itself is operated under a sublease by the nonprofit RMS Foundation.

QSDI filed for bankruptcy in March 2005 after a letter of default was issued by the city. That letter was prompted by a prolonged dispute between QSDI’s president and CEO, Joseph Prevratil, and city officials over the legality of rent credits taken beginning in 2001.

Bar-K is the largest single creditor in the bankruptcy, and has sought foreclosure on the lease to take over the property in lieu of repayment. Ng also was reported to be one of the potential bidders to buy QSDI’s assets before court-appointed trustee Howard M. Ehrenberg took over in April.

“The judge denied their motion for relief from the stay (of foreclosure),” Ehrenberg said. “He could have set the issue for a hearing with live testimony if he felt that the dispute over the value had any validity. He didn’t do that.”

Instead, Judge Anthony Zurzolo ruled that Bar-K was sufficiently protected against loss even using the lower value proposed by their own appraiser, Ron Greenspan.

Greenspan said the QSDI assets were worth $32 million. That appraisal did not include any value for the RMS Foundation sublease to operate the Queen Mary, Ehrenberg said.

The appraisal done for the bankruptcy trustee calculated the value of the remaining years of the lease, both with and without development entitlements. The FMV appraisal sets a value of $48.4 million for the QSDI assets as they stand, with the value jumping to $56 million if and when an Environmental Impact Report is completed for developing the property.

Zurzolo declined to try to decide which valuation was closer to the truth. Instead, he said in his ruling that even using Bar-K’s own lower estimate, the debt was adequately protected.

There are a number of other debts waiting for resolution of the bankruptcy. The largest is the city of Long Beach, which says it now is owed more than $5 million. The city joined the trustee in opposing Bar-K’s motion.

“I’m just pleased that this dispute is behind us,” Ehrenberg said. “Now we can concentrate on moving ahead.”

After the appraisal was completed, Ehrenberg put up a secure Web site where qualified bidders can check the financial information necessary to make an informed bid. Potential bidders have to show they are viable before being given access.

“There has been significant real interest in the asset sale,” Ehrenberg said. “I can’t identify them because of confidentiality agreements, but I can categorically assure you that the parties with which we are speaking with are very capable, have the funding and wherewithal to develop the property and operate the hotel and attraction.”

A first bid is expected within 90 days. Ehrenberg said he would use the first bid to set the deadline for other bids, and seek a sale hearing in Zurzolo’s court. At that time, alternative bidders could come forward.

While potential buyers do their due diligence, negotiations continue between the city and Ehrenberg. The trustee said he is trying to strike a deal that will both satisfy the money owed issue and end the ambiguity of the rent credit agreement in the future.

“I can’t say that a settlement agreement is ready to be signed,” Ehrenberg said, “but I can say that I think we both understand where the settlement will be when it is signed.